Sovereign Debt Lawsuits: S1477 Krueger / A643-A Gonzalez-Rojas

MEMORANDUM OF SUPPORT

S1477 Krueger / A643-A Gonzalez-Rojas
In relation to restoring the champerty defense in sovereign debt lawsuits

The above referenced legislation restores the champerty defense in sovereign debt lawsuits for claims brought by litigious holdout investors greater than $500,000. Its purpose is to uphold the principle that debt should not be bought simply to profit through lawsuits. The New York State Catholic Conference strongly supports this bill.

Importantly, this bill is carefully targeted, applying only to aggressive investors – often called vulture funds – who make money through litigation. It does not affect normal investors, banks, or creditors who work in good faith to restructure debt cooperatively but rather seeks to uphold the basic principle that debt should not be bought simply as a means to profit through lawsuits.

Specifically, the bill would:

·      Close a loophole in New York law that currently allows lawsuits on large debt claims (over $500,000), even when the debt was bought purely to sue.

·      Lower New York’s automatic interest rate on court judgments, which has been stuck at 9% since the 1980s and no longer reflects today’s economic reality.

More than half of all sovereign debt owed to private creditors is governed by New York law. The current loophole in state law that eliminates the champerty defense in cases where debt is worth more than $500,000 has resulted in a rise in vulture funds at the expense of already impoverished nations and territories. The International Monetary Fund estimates nearly 70 countries are in or at serious risk of debt distress. Allowing these lawsuits to continue only deepens the harm, leading to untold ills in those nations as well as a growing migrant crisis in the United States and other nations.

The principle of debt forgiveness is a core tenet of Catholic social teaching, with roots in Scripture and tradition. Recent popes going back to St. John Paul II have made appeals for global debt relief. It is a critical step in lifting nations out of poverty and helping them to become stable contributors to the global economy, while having profound benefits to our own country as well.

We urge the legislature to pass this bill and for Governor Hochul to sign it into law this session.